Despite the improving weekly liquidity situation, the overall banking system’s liquidity continues to be in deficit making it the seventeenth consecutive week recording an overall liquidity deficit.
While liquidity will likely improve this week with no significant outflows, there could be some pressure thanks to the upward revision in the central government’s market borrowings as announced in the interim budget and the likely announcement of additional G-Sec borrowings, according to Care Ratings.
Nearly a month after sustained deficits, the banking system’s liquidity deficit eased last week and even moved to a marginal surplus of about Rs 5,000 crore.
The average daily liquidity deficit narrowed significantly from Rs 0.82 lakh crore for the week ended January 25 to Rs 0.25 lakh crore as on February, 1. The average liquidity in January 2019 has been notably lower at Rs 0.38 lakh crore compared to Rs 1.05 lakh crore in the month of December of 2018.
“The underlying factors behind the sustained liquidity tightness in the domestic banking system in recent months is the higher growth in bank credit off-take (growth of 8.2 per cent during April 2018 to January 2019) compared to the growth in deposits of 4.9 per cent and high levels of currency in circulation, which rose from Rs 20.1 lakh crore on December 7, 2018 to Rs 20.6 lakh crore on January 25, 2019, attributed to wedding season spending,” the ratings firm elaborated.
As per the latest weekly data, on a daily basis, the net banking system liquidity deficit narrowed from Rs 0.97 lakh crore on January 21 to Rs 0.06 lakh crore as on January 31. According to Care, the moderation can be attributed to the receding outflows towards GST payments and inflows on account of the month-end government spending towards salaries and pensions.
The OMO purchasing worth Rs 10,000 crore by the RBI during the week also infused liquidity into the system. So far this fiscal, RBI infused liquidity to the tune of Rs 2.37 lakh crore by way of OMO purchases and has announced another OMO tranche of Rs 37,500 crore for this month. However, the scheduled fortnightly reporting requirements of commercial banks and higher government borrowings did exert pressure on banks’ liquidity.
With the easing in banking system liquidity deficit, call market rates fell during the week ended February 1, 2019.
The call rates ended the week at 6.18 per cent, 23 basis points (bps) lower than the previous week’s close. The average call rates during the week at 6.35 per cent were 8 bps lower than the previous week. The average daily borrowings too was 18 per cent lower at Rs 19,793 crore compared with the average borrowings of Rs 24,165 crore in the previous week, Care explained.